Abstract
The effect of business groups on economic performance is controversial,
both theoretically and empirically. We hypothesized that the seemingly
contradictory empirical results can be explained by the differentiated
governance structure of the business groups and, in particular, the
role of social ties (family ties and interlocking directorates).
Using a sample of Chilean firms, we analyzed the effects of social
ties on the economic performance of firms affiliated to business
groups. Our results support the hypothesis that the ownership-control
structure (i.e., economic rights and voting rights) affects performance
both directly and in interaction with social ties. Social ties improve
performance when the concentration of voting rights is low, and when
the voting rights of the controlling shareholders are aligned with
their economic rights. © 2005 Elsevier Inc. All rights reserved.
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